Small business is the backbone of America’s economy. While large multinational companies tend to get all of the attention, it’s the small companies that are critical to the country’s economy.
From your local “mom and pop” shop to the independent watering hole around the corner to the small manufacturing company making widgets, small companies are critical to the economy.
These are the companies that tend to fare better than other companies when coming out of a recession or a slowdown, due to their ability to make quick decisions in response to rapidly changing business variables.
While large companies could take months to adapt to a changing business environment, small companies could take only days or weeks to adjust, which is why their activity should be monitored.
An interesting measure on how well small companies may be doing can be linked to the amount of loans taken out. The thinking is: the higher the loans, the more the business is growing.
The Small Business Lending Index (SBLI), developed by Thomson Reuters and PayNet, is a good benchmark on small business lending. The SBLI is based on the volume of new commercial loan and lease originations from the major lenders in the U.S. given to small companies.
In March, the index fell to 98.5 from 105.4 in February.
The SBLI chart shows the pattern of the loans from 2005. You will notice the dip in loans when the recession surfaced, followed by the steady rise in loans to small companies up until the present time. Also note the recent big dip in loans to small companies.
This recent decline may prove to … Read More
Consistent jobs growth remains an issue here in the U.S.
We also know that the lack of jobs is a worldwide problem that is only made worse by the world’s growing population and the stalling global economy.
The reasoning behind this worldwide jobs problem is simple.
Jobs are created when the economy expands, which drives the need for more workers. Of course, modern technology, industrial efficiencies, and the increased use of robots all combine to pressure jobs growth, and I expect this pressure to continue.
Just take a look at China. In that country’s vast manufacturing landscape, the key driver is the masses of unskilled workers who are required to toil at their workstations for 12 hours or more each day.
China’s companies can make use of robotics to help in many of the assembly areas, but it seems that these companies use human labor instead—perhaps because creating jobs for the masses is a goal of communist China.
According to the International Monetary Fund (IMF), China’s unemployment rate has managed to hold pretty steady at just over four percent since 2003. In 2012, the unemployment rate was 4.1%, the same as in 2010 and 2011, and the estimate for 2013. (Source: “China: Unemployment rate from 2003 to 2013,” Statista web site, last accessed April 23, 2013.)
But in the more industrialized countries, like the United States and countries in Europe, there has been a move toward modern industrial techniques and the use of robotics.
And while America struggles to create jobs growth, the situation is extremely dismal in Europe.
As I commented in these pages a few weeks back, the … Read More
The impact of the Federal Reserve’s low interest rates and easy monetary policy can be seen everywhere. The housing sector is seeing another boom thanks to the Federal Reserve. So is the retail sector and consumer spending, in spite of the fact that jobs growth is not at pre-recession levels. The Dow and the S&P 500 also achieved more records on Tuesday. Again, the stock market wealth and all of the 300,000 or so newly minted millionaires have the Federal Reserve to thank.
On Tuesday, the automobile sector joined in on the fun, as easy money and cheap financing rates for new vehicles helped to drive up sales to the highest levels since 2007.
At Ford Motor Company (NYSE/F), sales increased six percent to 236,160 vehicles sold in March, while at General Motors Company (NYSE/GM), sales jumped 6.4% to 245,950 in March.
You can get a 60-month financing term for a new vehicle for as little as 2.24% at the Bank of America Corporation (NYSE/BAC) and 2.69% at Capital One Financial Corporation (NYSE/COF). (Source: “Auto Loan Rates,” My Bank Tracker web site, last accessed April 2, 2013.) The average 60-month rate is around 4.12%, according to Bankrate.com, down from 4.52% a year ago.
You can also thank President Obama for helping to save the auto sector, as the move is apparently paying dividends.
While the renewed spending across America is good for the economic recovery, you kind of have to wonder about the ramifications down the road, when interest rates begin to ratchet higher.
Some members of the Federal Reserve are already beginning to voice their opinion to start reducing … Read More
The money printing presses appear to be in jeopardy. The amount of liquidity that has been pumped into the U.S. economy and other global financial systems has been superlative; and as I’ve said before, it would only be a matter of time before the massive national debt levels accumulated by the governments in the U.S. and Europe would wreak havoc with the economic recovery.
Yet, it may have finally clicked for the Federal Reserve, as comments made Wednesday questioned the central bank’s $85.0 billion in monthly bond purchases and suggested that the buying be reduced or stopped to avoid facing losses. Could you imagine losses for an already cash-strapped central bank, given the national debt?
What has been happening is the Fed’s bond-buying provided the mechanism to pump hundreds of billions of dollars of liquidity into the economy; it was meant to keep it going and avoid a worsening of the recession, but it added to the national debt. Not isolated to the U.S., other central banks around the world have been pumping cash into the fragile global economy. In the financially distressed eurozone, the European Central Bank (ECB) bought bad debt and provided easy monetary liquidity, in order to avoid a financial Armageddon. But this added to the national debt of the countries. Yet here we are: Greece is in shambles; Spain, Portugal, and Italy are broke; and the eurozone’s two powerhouses, Germany and France, are struggling with their own growth issues.
The problem is that the super loose monetary easing in the U.S. created an artificial economy that has been supported by the free-flow printing of money and … Read More
I was reading that Apple Inc. (NASDAQ/AAPL) would produce at least one of its computer products in the United States. This is great news for jobseekers, but Apple will continue to manufacture the remainder of its products outside of the U.S. in low-cost global manufacturing regions, such as China, Asia, Mexico, Eastern Europe, and Latin America. The reality is that companies have to control costs, especially given the slower revenue growth amid corporate America.
The jobs numbers are not good. There are 22 million or so Americans looking for work who are unemployed or underemployed, with about 12 million being fully unemployed. These are not good jobs numbers, as many of these people are taking minimum-wage jobs just to fight off the creditors and put food on the table. The poor jobs numbers climate is also hindering the eurozone.
Jobs growth is showing signs of wanting to edge higher with the unemployment rate holding at 7.8% in December, with 155,000 workers managing to find full-time work, which was slightly ahead of Briefing.com’s estimate of 150,000.
The official unemployment rate is 7.8%, but I wonder about the validity of the jobs numbers as far as an accurate reflection of the nation’s jobs situation. My thoughts are that the unofficial unemployment rate is much higher than the reported rate. The official jobs numbers don’t include the millions of Americans that have dropped out of the labor force, tired of pounding the pavement to get shut out of jobs or working at minimum-wage jobs.
As I have said in this newsletter before, the millions of jobs that have vanished from the U.S. landscape … Read More
At the end of 2008, the financial crisis in America was so severe that the Federal Reserve began a historically significant and unprecedented monetary policy program, which has continued to this day, dramatically altering the financial and economic landscape.
Considering the extent and breadth of this huge monetary policy program by the Federal Reserve, two questions linger: why hasn’t the economy recovered as many economists had expected, and what is the downside?
Monetary policy is an extremely complicated initiative, with the end result not easily quantified or predictable. One of the most common complaints has been the lack of income from savers due to the lowered interest rates.
There is some validity that a massive amount of income has been foregone from savers because of these lower rates, due to easy monetary policy by the Federal Reserve and other central banks around the world.
According to The Economist, personal interest income has declined at an annual rate of $432 billion since 2008, more than four percent disposable income. This was interest income that was not generated and, ultimately, not spent in the economy. (Source: “Savers’ Lament,” The Economist, December 1, 2012, last accessed January 7, 2013.)
However, the situation is far more complex, as there are two sides to every coin. The lowered interest rates due to easy monetary policy by the Federal Reserve have also decreased the costs of borrowing.
The Bank of England conducted a study showing that between 2008 and 2012, the lowered interest rates ended up costing savers 70 billion pounds in lost income, but households saved 100 billion pounds in interest expense. (Source: The Economist, … Read More
According to the minutes from the Federal Reserve meeting on December 11–12, it now appears highly likely that the aggressive quantitative easing policy might end sooner than most people had expected. This is a shock to many market participants who had expected an extended period of time under the current quantitative easing policy by the Federal Reserve.
The minutes of the Federal Reserve meeting show that several members stated they believe that the current quantitative easing policy will end, “well before the end of 2013.” Other Federal Reserve members expressed their opinion that this quantitative easing policy will need to be completed by the end of 2013. Many market participants expected this current quantitative easing policy to last well into 2014, perhaps even into 2015. (Source: “Minutes of the Federal Open Market Committee,” Federal Reserve, January 4, 2013.)
The reason this statement is so important is that multiple Federal Reserve members voiced concerns and were of the opinion that the current quantitative easing policy needs to be reduced or completed sooner rather than later. While there was one Federal Reserve member who stated at a meeting before that no further bond purchases are needed, one voice is not enough to alter the opinion of an entire committee. But now, there are many Federal Reserve voices raising concerns.
Because this is the first real evidence that a large number of Federal Reserve committee members are voicing the opinion that the current quantitative easing policy will need to end relatively soon, one must take note. This is a pivotal point for potential change in monetary policy.
With this in mind, if the … Read More
Happy New Year to all of our Investment Contrarians readers!
In 2012, small-cap stocks were the second-best performing group, following the technology sector. The Russell 2000 was the top performer in December and has been since the end of the first quarter. How the small-caps fare this year will, again, depend on the global economy.
My stock analysis tells me that what happens in January will be an important indicator for the year as far as performance. Historical records indicate that stocks have increased an average of 1.6% in January since 1969, according to the Stock Trader’s Almanac. In 2012, January was a strong month, so it was not a surprise to see the relatively good advance in stocks.
As we move into 2013, the focus will be on any remaining fiscal cliff fallout and the impact of the deal, along with the eurozone mess, the U.S. national debt, and jobs growth.
For 2013, my stock analysis is cautious to start the year, based on the high global risk.
The fact that the economy is triggering some jobs growth is encouraging. My analysis is that this will likely continue in 2013, although the unemployment rate is expected to remain relatively high at over seven percent.
My stock analysis shows that we need to see leadership from such areas as the financial and technology sectors. The big banks were strong in 2012, but we also need to see technology take a leadership role.
It definitely will be a tricky year, given the global and domestic issues, along with suspect earnings and revenue growth to start the first quarter.
Again, as I … Read More
It would appear that Spain is still somewhat delusional regarding its ability to avoid having to ask the European Central Bank (ECB) and International Monetary Fund (IMF) for emergency capital. I previously discussed this issue after Spain’s finance minister, Luis de Guindos, said, “Spain doesn’t need a bailout at all.” (Source: “Spain FinMin’s ‘No Bailout’ Remark Causes Laughter,” CNBC, October 5, 2012, last accessed November 12, 2012.) Yet, the country is still being unrealistic in its view and is now facing a financial crisis that will likely worsen.
Maybe Spain doesn’t realize that when one of every four of your citizens has no job to go to, there’s a problem. The ECB’s buying of troubled and overpriced Spanish bonds in an effort to reduce the financing charges represents a bandage solution to a financial crisis. Spain talks about the lower yields. Yes the 10-year yields on Spain’s bonds are no longer over 10.0%, but at the current 5.9%, these yields are still comparatively high and not sustainable. Now, if Spain can get its yield down below three percent, then maybe the bond-buying will help; but until that happens, I’m not convinced, and Spain will continue to walk on a tightrope and see its financial crisis deepen.
Spain doesn’t want money, as it knows that emergency funds also come with strings attached: being told what to do with its budget, spending, and austerity measures.
Yet something must be done or Spain’s financial crisis will worsen. The problem is that Spain, like the United States, is facing muted growth, and a tough austerity program would bind Spain’s spending and would impact its … Read More
The key holiday shopping season is closing in fast. With the critical “Black Friday,” November 23, a month away, the retail sector will be anxious to see if consumers deliver.
The recent jobs report added some optimism to the retail sector; albeit, I doubt it will be enough to drive consumers to the malls and online to spend. We need to see progressive jobs creation, rather than the single reading, and we want to see a positive pattern. If jobs continue to rise, this would likely translate into higher sales in the retail sector.
Thanksgiving weekend, beginning with Black Friday, is important, as you can see in the chart below. Retail sales have increased in three straight years and the hope is for 2012 to be a banner year. The National Retail Federation is optimistic and estimates this holiday shopping season will generate sales of $586 billion, up from $563 billion in 2011. (Source: “Holiday FAQ,” National Retail Federation, accessed October 19, 2012.)
Copyright Lombardi Publishing 2012; data
source: National Retail Federation
The monthly retail sales numbers in the retail sector are showing some encouraging signs. The Thomson Reuters Same Store Sales Index (comprising of 17 U.S. chains) contracted 3.6% in September, which was in line with the estimate but well down from the 6.4% increase in September 2011. (Source: “U.S. retailers,” September sales up before holiday rush,” Reuters, October 4, 2012.) There’s a lot of work ahead for the retail sector
Consumer confidence in September was encouraging, with a reading of 70.3, above the estimate of 63.0, according to Briefing.com, and the upwardly revised 61.3 in August. Yet the … Read More
Watching the presidential debate on Tuesday, one thing was clear: both President Obama and Governor Mitt Romney were focusing on the jobs market. This was not a surprise.
Wall Street is not hiring, technology companies are firing, and the manufacturing sector is losing jobs to cheap overseas plants in China and Mexico, where wages are dirt cheap.
We are seeing more college graduates work at low-level jobs just to pay the bills, never mind their massive student loans. The reality is that given the dire situation in the jobs market, it will likely take years to resolve, and the mounting student loans will take decades to pay off.
Whether you sided with Obama or Romney, there is one common enemy, and that is the lack of strong and sustained jobs growth in America’s jobs market.
Obama is telling us about the surprise decline in the unemployment rate to 7.8% in September; while encouraging, the rate is well below that of the previous year.
Let’s take a closer look at the unemployment rate, based on data from the Bureau of Labor Statistics. The reading was the lowest since a 7.3% unemployment rate in December 2008, but the number remains well below the four percent level we saw during 2006 and 2007. The unemployment rate has improved from the recession high of 10.0% in October 2009, which was the highest level since the 10.8% in the December 1982 recession.
The trend of the unemployment rate, as you can see in the graph below, shows the improvement since August 2011, when over nine percent of Americans were officially unemployed in the jobs market. … Read More
While Black Friday is another seven weeks away, there is already mounting speculation on how good the holiday shopping season will turn out to be for the retail sector.
A strong fourth-quarter for the retail sector could boost the country’s gross domestic product (GDP) growth, since consumer spending accounts for about 70% of the GDP. The second-quarter GDP (third estimate) reflected the current stalling in U.S. consumer spending, as the GDP growth of 1.3% was well below the estimate of 1.7%. This represented the slowest rate of growth since the third quarter of 2011. (Source: “Economic Calendar,” Yahoo! Finance.)
Given this, you kind of have to wonder about the underlying strength of the consumer spending. GDP is estimated to grow at 2.7% in the U.S. in 2013. (Source: “2013 Economic Statistics and Indicators,” Economy Watch, October 5, 2012.) This implies a slight rise in consumer spending.
The retail sector is showing improvement in sales, but consumer spending on durable goods was horrible in August, when spending on non-essential goods and services cratered 13.2% (source: U.S. Census Bureau News, U.S. Department of Commerce, September 27, 2012), versus the -5.0% estimate and the -4.1% in July (source: “Economic Calendar,” Yahoo! Finance). Even when you eliminate the transportation portion, consumer spending on durable goods fell 1.6%, again worse than the -0.2% estimate and revised -1.3% in July.
The reality is that America as a whole needs to spend and drive retail sales, but this is not happening. The poor reading indicates hesitancy in consumer spending in the retail sector on non-essential goods and services that, in my view, is a key component of … Read More
The latest data regarding the economic growth rate of America came from the Commerce Department’s durable goods report, and the headline numbers weren’t good. The total orders for durable goods in the month of August fell 13%, primarily due to a massive drop in civilian aircraft.
This report, however, was not a surprise. While it may be a hit to investor confidence, the truth is that economic growth has been slowing and we’ve been aware of this from the numerous comments made by a large numbers of CEOs in interviews. The main concern is the “fiscal cliff.” The more people talk about the fiscal cliff and the more inaction by Congress, the less likely it is that businesses will expand. Would you increase your capital expenditures not knowing what will happen in just a few months? I certainly wouldn’t. This uncertainty is what’s really holding back jobs growth.
The economic growth forecast for next year without a deal to avert the fiscal cliff is bleak for America. Under such a scenario, jobs growth will continue to lag, as businesses have to adjust their projections of what is attainable with declining economic growth downward. A lack of economic growth will trickle down and affect many businesses. The continued lack of progress by Congress is clearly hurting the economy, and it has been for the last couple of months. As long as there is no deal in sight, I believe that we will continue to see worse economic data and a continued lack of jobs growth.
The largest impact on the durable goods number in August came from The Boeing Company (NYSE/BA), … Read More
Buying in the retail sector continues to be selective, but we are seeing improvements as evidenced by the retail sales reading in July that pointed to a surprise 0.8% jump in total spending, which was well above the 0.2% estimate and the June reading of -0.7%. Excluding autos, sales jumped roughly 0.8%, which was also above the 0.3% estimate.
I’m impressed, as consumers are spending in spite of the continued lack of strong jobs growth. The creation of 163,000 jobs in July was positive, and, if jobs growth continues, it should help to drive consumer confidence and the desire to spend in the retail sector. This is crucial, as every dollar spent creates jobs and additional spending down the road in the retail sector.
Think about it this way: you go to a restaurant and have dinner. The restaurant attracts business so it can remain in business and hire workers. After you tip the waiter, he now has extra income to spend on goods and services. The waiter then goes and buys a shirt at the department store. The sales clerk ringing in the sale earns a wage and possible commission on the shirt. In turn, he or she goes out and spends, and so on; hence the importance of the multiplier effect in the retail sector. Some economists estimate that each dollar initially spent can generate up to $7.00 in consumer spending in the retail sector, which is why it is crucial consumers spend to get the economy going.
I cannot say I’m a big supporter of the retail sector, but the conditions have improved and will likely get … Read More
I’ve been warning about the slowdown taking place within the Chinese economy. Moreover, official statistics reported by China may not be reflecting the scope of the slowdown that is taking place within the Chinese economy. However, there are many signs indicating that the country’s slowdown is actually worsening. What are these signs and what do they mean?
First of all, Chinese companies’ results were worse in the first six months of 2012 than they were in the first six months of 2009, when the financial crisis reached its height.
The Premier of China, realizing the scope of the problem, is considering tax cuts to help alleviate the crunch that Chinese companies are experiencing with this slowdown in the Chinese economy.
SANY Group is the biggest maker of concrete pumps in the world and the largest maker of construction machinery in the Chinese economy. This company reported weaker results and lowered its forecast for the remainder of 2012. The company was hoping to raise $2.0 billion in cash by issuing shares in the market, but had to pull the offering because demand was simply not there. Investors are worried that the slowdown in the Chinese economy could manifest itself into a hard landing, and so are adopting a wait-and-see-attitude.
China’s airlines, including Air China and China Eastern Airlines, are reporting a 50% drop in profits due to the declining demand within the Chinese economy. These are certainly not results reflective of a strong Chinese economy, and there are other measures that are indicating that things are getting worse, not better.
China’s central bank publishes a sentiment survey from companies to get … Read More